The Hindu Business Line : The export sop story

After repeated complaints by exporters of the appreciating rupee hurting their performance in global markets and post some lobbying on their behalf by the Commerce Ministry, the Finance Ministry has agreed to a series of relief measures that should help the merchandisers hedge their bets against what they term an unfavourable exchange rate. To partly offset the decade-high appreciation of the rupee against the dollar, North Block has reduced interest rates on pre- and post -shipment credit and increased duty drawback rates. These measures will be applicable to nine, mostly traditional exporting sectors, such as leather, textiles, handicrafts and engineering. The Commerce Ministry has also done its bit by enhancing the rates of the Duty Entitlement Passbook (DEPB) scheme that offsets the costs of local imposts. Exporters may feel vindicated about their grievance over the exchange rate that had begun to squeeze their margins.

Most importers, mainly from the US, tend to be sensitive to price escalations given the wide options they have. But price advantage is a double-edged weapon for most developing nations and can fail on two counts. One, when a country — China, for instance — out-prices competitors by depressing its exchange rate, and two, when a nation — India, for example — may have to let its currency appreciate in order to reduce import costs and fight domestic inflation. The best way to sustain exports, as Japan and East Asian economies have showed, is to make exports competitive through non-exchange rate factors: By innovating, adding greater value, resorting to best practices, anticipating market trends, and shifting focus to areas where the rupee is still competitive, currently, the Euro Zone.

The adverse effects of a strong rupee — there may not be a quick reversal — must, therefore, be turned into an opportunity for an overhaul of merchandise trade. The government must explore how the nation’s export basket can be enlarged. A Parliamentary Committee on Commerce recently lamented that some traditional exports were not growing at all. For instance, India was exporting only 20 of the 120 tariff lines in textiles. Equally, the Commerce Ministry must take the lead in creating a more seamless movement of goods — be they perishables or boilers and turbines — from supplier to the global market. Patchy logistics, at ports, on the road, in the Customs house, erodes export competitiveness far more than a rising rupee. But removing the glitches that currently dog exporters requires various ministries to work together. A concerted strategy to reduce such hidden costs will counter the ill-effects of a rising rupee far more than tax concessions.

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